'White Knight' takeover for Bradford & Bingley unlikely, say analysts

Embattled buy-to-let specialist Bradford & Bingley's prospects as a standalone lender are looking bleak, City analysts warned today.

Embattled buy-to-let specialist Bradford & Bingley's prospects as a standalone lender are looking bleak, City analysts warned today.

Jonathan Pierce, at Credit Suisse, said B&B's higher-than-average mortgage arrears rates and exposure to falling house prices meant the chances of any bigger bank playing a willing "white knight" takeover role was unlikely.

That left a managed acquisition by a bigger group, he said, or direct intervention from the Government as the probable alternatives.

Mr Pierce said: "The form of any potential resolution is unclear. Ultimately B&B's biggest issue is asset quality and we doubt any major bank will want exposure to a £40bn (€50.4bn) mortgage portfolio with arrears almost double the industry, and where over 40% of loans will be in negative equity if house prices fall 30% peak-to-trough, on our estimates," he said.

"That would leave three other options. Go it alone - in our view, increasingly untenable - direct regulatory intervention, or a managed acquisition by other institutions likely at the cost of equity holders."

Other equally gloomy assessments have been made by brokers Brewin Dolphin and Fox-Pitt Kelton.

UK gvernment intervention over B&B need not be another Northern Rock style bail-out, commentators have mooted, with its riskiest loans being taken off its hands a potential option.

The proportion of B&B's mortgages more than three months in arrears stood at 2.29% as at June 30, compared to an industry average of 1.21%.

B&B has already posted a near £27m (€34m) loss for the first half of this year, with its results suffering from a series of deals to take mortgages off other lenders.

Arrears rates on the loans it generates itself stood at 1.78% at the half year, compared with 5.11% on the acquired loans which make up around 20% of its £41.3bn (€52.1bn) mortgage book.

The group this week managed to get out of £1.75bn (€2.2bn) of new mortgages from lender GMAC-RFC, taking on instead £750m (€946.2m) worth.

Last week's takeover of HBOS by Lloyds TSB has led to speculation that B&B might be rescued by a larger partner.

The UK's financial watchdog has reportedly been speaking to a series of potential suitors over a deal, including Spain's Santander - owner of Abbey and Alliance & Leicester - Dutch banking group ING, and Yorkshire and Clydesdale Bank owner National Australia Bank. B&B's shares soared on Monday in the wake of the reports.

However, the group was rocked again after being hit by a downgrade from ratings agency Standard & Poor's. This makes it harder and more costly for the group to raise finance.

Mr Pierce said: "Further downgrades are threatened unless a partner or external support is found."

B&B is the last of the former building societies to remain independent. Alliance & Leicester is being taken over by Abbey-owner Santander and HBOS is in the clutches of Lloyds TSB.

B&B's shares have fallen nearly 20% this week alone, and more than 90% over the past 12 months.

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